Fiscal Cliff Would Only Dent The Deficit

House Speaker John Boehner, seen last week, discusses the looming fiscal cliff.

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Originally published on December 4, 2012 7:30 pm

Virtually everyone agrees that allowing the nation to fall off the fiscal cliff would be a bad thing.

Government programs would be cut, taxes would rise significantly on a majority of Americans, and according to the Congressional Budget Office, the economy would fall back into recession.

But get this: Even if all of those things happen, there would still be a budget deficit.

When it comes to describing the fiscal cliff — that combination of tax increases and spending cuts that would automatically begin in January unless Congress and the president step in — federal budget guru Stan Collender turns to superlatives.

Expiration of tax cuts that were started under President George W. Bush "would clearly constitute one of the biggest tax increases ever imposed on taxpayers in American history," says Collender, who works at Qorvis Communications.

According to one analysis, ending the Bush-era tax cuts would cost the average household $3,500 a year.

And then there's the other side of the fiscal cliff: what's known as sequestration — about $110 billion in automatic across-the-board spending cuts that would hit everything from schools to weapons systems every year for the next decade.

"That would be the single largest one-year reduction, nominal reduction, in the deficit in American history," says Collender.

This would take a significant bite out of what would be a $1 trillion deficit. Still, the government would spend more than it takes in.

The Congressional Budget Office projects a $641 billion budget deficit for the fiscal year that started Oct. 1 — and that's assuming the fiscal cliff actually happens and is in effect for three-fourths of the fiscal year.

MONTAGNE: There is widespread, even bipartisan agreement that allowing the nation to fall off the fiscal cliff in January would be a bad thing. Government programs would be cut, taxes would rise significantly, and according to the Congressional Budget Office, the economy could fall back into recession.

But as NPR's Tamara Keith reports, even if all of those things do happen, there'd still be a budget deficit.

TAMARA KEITH, BYLINE: When it comes to describing the fiscal cliff, Stan Collender turns to superlatives.

STAN COLLENDER: It would clearly constitute one of the biggest tax increases ever imposed on taxpayers in American history.

KEITH: Collender is a federal budget guru who works at Qorvis Communications. And he's describing one element of the fiscal cliff, the expiration of the Bush era tax cuts. According to one analysis, it will cost the average household $3,500 a year. And then there's what's known as sequestration, about $110 billion in automatic across-the-board spending cuts, hitting everything from schools to weapon systems every year, for the next decade.

COLLENDER: That would be the single largest one-year reduction, nominal reduction in the deficit in American history.

KEITH: This would take a significant bite out of what would be a trillion dollar deficit. Still, the government would spend more than it takes in.

Maya MacGuineas is president of the Committee for a Responsible Federal Budget and she says it's...

MAYA MACGUINEAS: A big, big, big, big, big number.

KEITH: How big? Sixty hundred and forty-one billion dollars. That's what the Congressional Budget Office projects the budget deficit will be in the fiscal year that started October 1st. And that's assuming the fiscal cliff happens. But here's the thing. You'd be hard pressed to find a politician, or economist, or even deficit hawk like MacGuineas who thinks that's a good idea.

MACGUINEAS: It's true that it's done in the absolute wrong way. But it's still not even big enough to start to tackle the fiscal problems that we have.

KEITH: Now let's imagine Congress wants to extend the tax cuts. You can add nearly $250 billion to the deficit for this year. Do that for a decade and it will add more than $5 trillion in debt. You might be thinking this could be solved by letting taxes go up on the rich. Think again. That only shaves about 20 percent off the bill. Avoid the painful cuts of the sequester, you can add more than a trillion dollars to the debt over the next 10 years. And now you're talking about a big, big, big, big, big number.